Project to fund Mexican micro, small and medium-size enterprises

Monday, December 12, 2005

A $2 million grant from the Inter-American Development Bank?s Multilateral Investment Fund will help finance a project to involve Mexican micro, small and medium-size enterprises in ?base of the pyramid? market opportunities to provide better products and services to low-income consumers.

The CESPEDES committee of Consejo Coordinador Empresarial (CCE), an association supported by some of the largest corporations in Mexico, will carry out the project, which draws from a concept of University of Michigan business school professor C. K. Prahalad, author of The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits.

In his book Prof. Prahalad describes cases of companies that are successfully serving low-income people, a market of four billion potential consumers worldwide, by developing new business models and strategies. This base of the pyramid represents an important opportunity for private sector growth and innovation, responding to the needs of poor households.

?Reliable, high-quality products and services are missing from lives of the poor,? said MIF project team leader Daniel Shepherd. ?The project in Mexico intends to demonstrate how the private sector can effectively reach this segment through new ways of doing business and generating jobs and economic growth among the same small enterprises that operate in the base of the pyramid market.?

By leveraging the advantages of smaller firms ? their proximity to clients, vast distribution networks and knowledge of local needs and culture ? the project will involve micro, small and medium-size enterprises in business ventures with larger companies to supply the base of the pyramid market in Mexico, where some 55 million people live on less than three dollars a day.

Among the sectors where innovative, lower cost and better quality goods and services are needed, and therefore could be developed for low-income Mexican consumers, are housing and construction, food processing and distribution, energy, water, recycling and waste disposal.

The MIF?s resources will contribute to the development of project plans for new products and services, as well as provide assistance to ventures backed by sponsoring companies, associations of small businesses or NGOs interested in working in the base of the pyramid market.

Through the project?s competitive grant component, the MIF will finance up to 50 percent of the cost of eligible initiatives, which will range from $50,000 to $200,000. Venture sponsors will make matching contributions. CCE will provide $2 million in counterpart resources, of which at least half will be in cash.

The project will also seek to establish links with other institutions and organizations working on base of the pyramid issues, such as the University of Michigan, Cornell University, the World Business Council on Sustainable Development and the World Resources Institute.

The MIF, an autonomous fund administered by the IDB, supports private sector development in Latin America and the Caribbean, with an emphasis on microenterprise and small business. It has financed projects promoting productive supply chains and corporate social responsibility aimed at building partnerships among small and large companies.

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